Liquidation Advantages: The Advantages of a Company Liquidation for the Directors

Since the liquidation of a company ultimately means the end of the business, as all of the assets are sold to repay as many debts as possible, it would seem that there would be limited advantages in this situation. However, many company directors choose to voluntarily liquidate in a process known as creditors’ voluntary liquidation (CVL), and this route offers a number of advantages in comparison to continuing to trade insolvently. If there is no prospect of recovery and the demise of the company seems imminent, undergoing a voluntary liquidation can be much more advantageous than waiting for a creditor or HMRC to force the company into liquidation.

I understand that the last people you would ever want to speak to would be a business rescue firm, but I also know that trying to understand your options can be equally challenging. I have seen every eventuality in business and can help clarify what your options are.

Protection from Wrongful Trading Accusations

The primary reason why most directors choose to liquidate the company is to avoid the hassle of being accused of wrongful trading. Directors have to adhere to certain duties and requirements when controlling the actions of a company that is trading insolvent! In summary, if a director does not act in the best interests of the company’s creditors as a whole, this may come to light when the liquidator performs an investigation after liquidating the company. If the director is found guilty of wrongful trading, they could be banned from acting as a director of any limited company for a period of up to15 years.

In a compulsory liquidation, the liquidator is appointed by the courts or the creditors. Liquidators appointed by the court are particularly thorough during the investigation, and liquidators appointed by disgruntled creditors are often instructed to find and highlight any possible instance of wrongful trading.

Protection from Personal Liabilities

If a director is found guilty of wrongful trading in a post-liquidation investigation they could be held personally liable for some or all of the company’s debts. All liquidators (whether appointed by the directors, the Court, HMRC, or another creditor) are required to perform a post-liquidation investigation. When you choose to liquidate a company voluntarily you’ll be given professional guidance before, during, and after the procedure, so you probably won’t make any ill-informed decisions that could cause you to be held personally liable subsequently.

Avoidance of Court Procedures

Taking the initiative to voluntarily wind up your company through a CVL will also save you the hassle of having to deal with the process of being petitioned by the Court. During a compulsory liquidation the petition to wind up your company is made public because it is listed in the London Gazette as an advertisement 7 days after it is served to the company directors. When this happens not only will banks freeze your accounts and company assets, but anyone will be able to see that your company is being liquidated. Although a petition advertisement still has to be listed in the Gazette if you opt for a CVL, it will be apparent that it was a voluntary decision, and not a hostile action taken by creditors or HMRC.

The Consideration of Alternate Options

If you really don’t want to liquidate your company, but feel that is the only option left, a simple consultation with an insolvency practitioner could reveal some alternative solutions that you may want to consider. A pre-pack administration, company voluntary arrangement (CVA), or asset financing could be used to leverage the company’s remaining assets in order to repay creditors and/or obtain additional funding.

Peace of Mind

Finally, making the decision to voluntarily liquidate your company will give you the peace of mind and assurance that the old company is over. You’ll no longer have to deal with stressful creditor pressures, repetitive phone calls from debt collectors, and warnings from HMRC. After the old company is ended you’ll have the opportunity to continue your career as the director of another company without being burdened with the stress of carrying on an insolvent company.

Call us today to participate in a free consultation and we’ll assess your situation and help you determine whether a CVL would be the most appropriate course of action. If so, we’ll give you a preliminary walkthrough of what to expect and an estimate on how much the procedure will cost. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 55 UK offices or a place of your convenience.

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Real Business Rescue is a trading name of Begbies Traynor (Central) LLP a limited liability partnership registered in England and Wales No. OC306540. The firm is authorised by the FCA to undertake debt counselling and debt adjusting and its reference number is 660455. Copyright 2018 Real Business Rescue, all rights reserved.